Johannesburg - Road Accident Fund (RAF) chief executive Eugene Watson confirmed that the institution had been insolvent since 1981 and last week had an unfunded liability of R145 billion, which was equivalent to 3.5 percent of South Africa’s gross domestic product.
Watson, who was appointed in 2012, told Business Report in an interview that the fund had suffered from performance, management and governance issues over the last two decades and they fully recognised it needed “a serious amount of work to make the institution better”.
“Something has to be done. Whether you are a fan of this (RAF) or something new, we have to do something because in five to eight years we will have to pay the R145bn,” Watson said.
According to the fund’s latest annual report, it has only 6c worth of assets for every R1 of its liabilities, which puts into sharp perspective the unsustainability of the current system.
But Watson said there were a few signs the transformation of the RAF was working including: the fulfilment of its annual performance plan targets from 53 percent in 2011 to 90 percent in the year to March; achieving three consecutive clean and unqualified audits; the re-introduction of direct claims from 2010, with direct claims without an attorney now accounting for up to a third of total claims, which showed a fair degree of confidence in a public institution; and the reduction in the backlog in claims to 217 000 from 450 000 in 2010, despite more new claims being registered in the past year than ever before.
The RAF revenue grew 46 percent from R22.7bn to R33.2bn in the year to March because of the 50c a litre increase in the fuel levy and a minimal increase in the volume of fuel sold in the previous year.
The fuel levy represented 13 percent of the total pump price, which averaged 1 272c a litre in Gauteng.
However, the RAF recorded a loss of R35bn during the period compared with R19.5bn declared in the previous year. This deficit was directly related to the provision for outstanding claims, which increased from R109.3bn to R143.3bn.
The provision was an actuarial estimate of what it would cost to fund claims that were still on hand and being processed together with those claims that would still be registered in future for past periods.
Watson said the Road Accident Benefit Scheme (Rabs), which still had to be promulgated, was a policy decision that was in line with world trends and removed fault and negligence from claims and focused on needs, including the financial, rehabilitation and medical needs flowing from road accidents.
He claimed South Africa was the last country in the world to still operate a road accident fund on a fault basis and the RAF believed it was the correct way to go.
Watson said Rabs might introduce a lower limit to claims at the top end, and this had led to the middle class and wealthy claiming it was a bad thing. But he stressed that they had the ability to self fund while the minimum benefits meant a lot more people at the lowest end of the socio-economic ladder, who were previously excluded, benefited.
He said Rabs would remove fault and the necessity to prove negligence, which meant there was not room in the process for legal representation and claims became a social security arrangement.
Watson said there was a view that legal costs were driven, but the RAF stressed this was not true, adding that it would not under or over settle.
Watson said about 77 000 personal claims were finalised in the past year, of which about 45 000 were settlements or litigated claims. He said about two thirds of the 45 000 litigated claims were settled out of court and stressed the RAF could not force people to accept offers.
However, he said the RAF had achieved a saving of R3bn from the rationalisation of the claim when it did go to court.
Watson said the RAF had done a lot in the past few years to crack down on fraud and corruption in the claims process, and now had a strengthened team of 80 hired from the special investigation unit apart from partnerships with law enforcement agencies.
BUSINESS REPORT